Aurora Cannabis Inc.(TSX:ACB) and Canopy Growth Corp.(TSX:WEED) are battling it out for the title of Canada’s favourite cannabis stock. Canopy is maintaining the lead with a $6.45 billion market cap, but over the last few months, Aurora has been making aggressive, potentially short-term-oriented moves to better position itself to grab a bigger chunk of the pot pie once marijuana finally gets legalized. Shares of both firms have been high flyers over the past year, but as we move past legalization day, which stock, if any, is the better long-term bet?

Aurora Cannabis Inc.

In a highly regulated environment, Aurora stands to be a huge winner with its massive production capacity, which is pointing to ~270,000 kilograms of dried cannabis per year on the high end. The massive 800,000-square-foot Aurora Sky growth facility is slated for a mid-2018 completion, just in time for nationwide legalization, which is tentatively scheduled for summer 2018.

Add the recent CanniMed Therapeutics Inc. acquisition into the mix and you have a firm that’s aggressively pursuing the opportunity to fulfill the demand for legal marijuana, which is expected to be in short supply, according to most industry pundits.

Moreover, Aurora has not wasted time inking deals on the distribution front, acquiring a minority stake in Liquor Stores N.A. Ltd. and inking a deal with Shoppers Drug Mart as one of its many suppliers.

Given the company’s massive capacity, Aurora may seem like the most compelling buy for the first year that marijuana is legalized across the nation; however, it’s worth noting that the company may have sacrificed its long-term fundamentals to open the medium-term post-legalization window of opportunity slightly wider to get a leg up on Canopy.

Aurora’s management is clearly making a bet that legal weed will be in short supply over the years following legalization day. If this doesn’t end up being the case, or if a negative development rears its ugly head (i.e., further delays to the legalization date), then things could turn sour really fast.

Canopy Growth Corp.

Unlike Aurora, Canopy’s production capacity for legalization day remains less certain. CEO Bruce Linton remains focused on the long-term outlook and has avoided shedding too much light on short-term guidance, making it really tough for analysts to project where Canopy is going to end up in the months leading up to and following legalization day.

The company has ~3.4 million square feet of facilities under construction in British Columbia; however, they’re unlikely to be operational in time for the summer 2018 legalization day, unless another delay is in the cards.

Thinking long term, Canopy could certainly become a standout winner should the government decide to give branding and promos the green light down the road. Like the cigarette industry, Canopy’s premium brands, Tweed or Leafs by Snoop, could serve as a durable competitive advantage in such an environment, allowing Canopy the ability to eventually control a substantial portion of the legal weed space.

Until then, Canopy will be just another commodity producer, as it focuses on scaling up while driving down per-gram costs, just like all other pot firms in the space.

Bottom line

Although Aurora is better equipped to thrive come legalization day, I think Canopy is the far better stock to own for the long run. Canopy’s management team appears to be taking a long-term approach to growth, rather than acquiring production capacity to meet the needs of a short-term marijuana “boom,” which may not be as big an opportunity as analysts believe.

Furthermore, Canopy’s management appears to be willing to sacrifice near-term results for long-term fundamentals. Although Aurora appears to be the biggest near-term winner come legalization day, Canopy is very well equipped to pull ahead over the next three to five years, all while the industry evolves, potentially creating unique opportunities for Canopy to win the race by taking a “smart and steady” stance on growth, rather than diluting shareholders to death on deals just months before legalization day.

In short, I think Aurora could pull ahead of Canopy with its potentially larger capacity over the near term; however, I believe Canopy will eventually re-gain top spot as Canada’s largest pot stock.

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Fool contributor Joey Frenette has no position in any of the stocks mentioned.

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